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Parameterization of applied general equilibrium models with flexible trade specifications based on the Armington, Krugman, and Melitz models

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  • Oyamada, Kazuhiko

Abstract

This paper explains how the Armington-Krugman-Melitz supermodel developed by Dixon and Rimmer can be parameterized, and demonstrates that only two kinds of additional information are required in order to extend a standard trade model to include Melitz-type monopolistic competition and heterogeneous firms. Further, it is shown how specifying too much additional information leads to violations of the model constraints, necessitating adjustment and reconciliation of the data. Once a Melitz-type model is parameterized, a Krugman-type model can also be parameterized using the calibrated values in the Melitz-type model without any additional data. Sample code for the General Algebraic Modeling System (GAMS) has also been prepared to promote the innovative supermodel in the AGE community.

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File URL: http://ir.ide.go.jp/dspace/bitstream/2344/1202/1/ARRIDE_Discussion_No.380_oyamada.pdf
File Function: First version, 2013
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Bibliographic Info

Paper provided by Institute of Developing Economies, Japan External Trade Organization(JETRO) in its series IDE Discussion Papers with number 380.

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Date of creation: Jan 2013
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Publication status: Published in IDE Discussion Paper. No. 380. 2013.1
Handle: RePEc:jet:dpaper:dpaper380

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Related research

Keywords: Microeconomics; Trade theory; International trade; Applied general equilibrium; Calibration; Heterogeneous firms;

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  1. Edward J. Balistreri & Russell H. Hillberry & Thomas F. Rutherford, 2008. "Structural Estimation and Solution of International Trade Models with Heterogeneous Firms," Department of Economics - Working Papers Series 1056, The University of Melbourne.
  2. Roberto Roson, 2006. "Introducing Imperfect Competition in CGE Models: Technical Aspects and Implications," Computational Economics, Society for Computational Economics, vol. 28(1), pages 29-49, August.
  3. Zhai, Fan, 2008. "Armington Meets Melitz: Introducing Firm Heterogeneity in a Global CGE Model of Trade," Journal of Economic Integration, Center for Economic Integration, Sejong University, vol. 23, pages 575-604.
  4. Krugman, Paul, 1980. "Scale Economies, Product Differentiation, and the Pattern of Trade," American Economic Review, American Economic Association, vol. 70(5), pages 950-59, December.
  5. Roberto Roson, 2006. "Introducing Imperfect Competition in CGE Models: Technical Aspects and Implications," Working Papers 2006.3, Fondazione Eni Enrico Mattei.
  6. Roberto Roson, 2006. "Introducing Imperfect Competition in CGE Models:Technical Aspects and Implications," Working Papers 2006_02, Department of Economics, University of Venice "Ca' Foscari".
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